House View: Dollar in focus as equities push to March highs

FOREX:We are seeing a 'status check' on USD this week as trade tensions may come back into focus.

• USD: rally has faltered as long US yields remain capped, risk appetite returns. • US: trade war back in focus this week with hearings on Trump tariff plans Tuesday through Thursday. • FX volatility: risk appetite very strong until proven otherwise; this presents a challenge to the strong USD trend. • SEK: run higher largely triggered by positioning, may run out of steam if no new SEK-positive catalysts. • EURUSD: first sentiment test on consolidation around 1.2000 level and 200-day SMA just above (1.2020). • GBP: latest Bank of England meeting triggers more weakness but the big support level (1.3500 in GBPUSD) is so far holding. • JPY: strong risk appetite, stable yields, and high oil prices very negative... big structural focus on the 110.00 area. • EM: currencies seeing big relief as risk spreads contract, volatility does likewise, USD rally fades. • NZD: sharply weaker after dovish surprise and two-way policy potential comments from the Reserve Bank of New Zealand last week.

Tech levels on watch for developments

• AUDUSD: Big resistance zone (trend-line and former range) up into 0.7600-50. • USDJPY: 110.00 has been twice tested and 200-day moving average is just above - a pivotal area for the yen. • GBPUSD: 1.3500 is an area with significance stretching back to global financial crisis, etc.

Trade themes

• Tactical USDCHF downside: Bears to trade for 0.9800 area consolidation if price action remains below 1.0050. • AUDNZD upside: watching for extension as high as 1.1300 eventually, 1.1000 to start. • EURNOK downside: bears to stay short with price action below 9.60; 9.50 as break could trigger a run to 9.25.

EQUITIES:Global equities have their March highs in sight.

Countries

• Remain neutral on US equities until S&P 500 Index breaks above the 2,800 level; stronger USD is likely to be a headwind. • Remain positive on EM equities as long as MSCI EM stays above the 1,130 level (recent lows); strong USD is key risk. • Remain neutral on UK equities despite strong momentum; would like to see January highs taken out first. • Remain positive on European equities as a weaker EUR provides tailwind and the macro surprise cycle is likely to turn. • Remain positive on Hong Kong equities as long as Hang Seng stays above 29,000; potential upside catalyst is China stimulus and A-shares inclusion. • Switching to positive from neutral on Japanese equities as momentum is strong and a weaker JPY helps exporters.

• The US 10-year interest rate (smoothed 60-days) is the highest since Q3 2011. • The recent turn in the G10 macro surprise cycle has been rejected and is close to the worst levels since Q2 2013. • While we remain positive on EM, as the Chinese A-shares inclusion in June will attract inflow, EM is fragile to rising rates. • Stronger oil prices will impact inflation; recent surge has removed energy sector from the least-preferred list. • Tariffs and trade war concerns have not faded. Trump is considering 20% tariff on imported cars and ZTE situation is fluid.

• The yield of 10-year US Treasuries continues to trade below 3% as investors start to sell riskier bonds in the EM space. • Although Italy may soon have a populist government formed by the Five-Star Movement party and the Northern League, Italian bond spreads remain stable and near a two-year low. What keeps investors positive is a stronger financial industry and improved growth outlook, however markets seem to forget that these parties are looking to implement policies which will cost approximately €30 billion, adding to Italy's large extant debt. • The spread between two- and 10-year Treasury yields has hit a new low, making it the yield curve the flattest since 2007. There is more room for flattening as the Federal Reserve continues to be hawkish and the Treasury increases the supply of short-term bonds to fund its rising deficit.

High-yield

• US high-yield bonds gained last week with B and Caa rated bonds outperforming. • Sentiment for high-yield corporate bonds remains positive as junk bond issuance remains light and equities are rallying. Moody's expect US junk bond defaults to decline to 1.5% in one year, from more than 3% today.

Investment grade

• US high-grade bonds look ripe for allocation as IG spreads have widened since the beginning of the year. The average yield for US high-grade 10-year corporates at the moment is above 4%

Emerging markets

• EM start to become weaker as USD strengthens. Argentina, Turkey, and Indonesia are some of the first victims • Chinese high-yield corporate bonds are coming under more and more pressure as investors grow more cautious in the primary. Political risk adds to weakness. • S&P raises Egypt's sovereign rating to B as economic growth is strenghtening. The yield of Egyptian sovereigns with maturity January 2027 has fallen to 6.8%, approximately 50 basis points on the news.

COMMODITIES:Supply disruptions raising Brent range to between $71 and $82/barrel.

Energy

• An ongoing and future threat to supplies from Venezuela and Iran has shifted Brent's trading range sharply higher. • Downside risks: Extended fund long, rising US rig count, and potential cessation of the Opec/Russia deal. • Sanctions and tariffs together with rising fuel prices may eventually lower outlook for global growth and demand. • Bias: Brent taking aim at Saudi Arabia's preferred target of $80/b with support at $75/b.

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Contact Us

Call Us

Join our Community

Country

Losses can exceed deposits on margin products. Please ensure you understand the risks.

Saxo Capital Markets Pte Ltd is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as CFDs and Margin FX products may result in your losses exceeding your initial deposits. Saxo Capital Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan. Please click here to view our full disclaimer.